Plan Design:

The reasons for sponsoring a Qualified Retirement Plan are abundant and as varied as the businesses that adopt Qualified Plans. You may have one or more of the following objectives in mind when choosing the type of plan that is best suited for your business:

• Retirement Plans are desirable employment benefits that attract and retain experienced employees in a very competitive job market.



• Retirement Plans help employers and employees save for retirement as Social Security benefits alone are often inadequate.
　


• Employers are able to fund Retirement Plans with pre-tax dollars, often resulting in tax deductions and subsequent savings for successful businesses.



• Acceptable Plan language often provides for hardship distributions and/or loans by participants who need the funds for education, illness, home purchase, or to prevent foreclosure.



• Plan assets are protected from creditors.

All retirement plans are not created equally. There are a variety of plan designs and strategies to choose from. Our Plan Consultants work with plan sponsors and financial advisors to ensure that the plan is "Qualified" and that it meets the needs of the employer.

Qualified Plans:

Retirement Plans that meet certain criteria required by the IRS (Internal Revenue Service) and DOL (Department of Labor) are said to be "Qualified Plans." These criteria are designed to ensure that the plan does not discriminate in favor of the highly compensated at the expense of non-highly compensated employees. There are several rules regarding fee disclosure, investment options, and participant statements. A Qualified Plan must have a fully executed "Plan Document" whose language has been approved by the IRS & DOL. Qualified plans are also top-heavy tested for discrimination. Qualified plans must file annual tax returns (IRS Form 5500) in addition to other state and federal requirements. Third Party Administrators (TPA) are responsible for all of the document, amendment, and compliance work for the plan. TPA’s are responsible for keeping up with ongoing legislation and notifying the plan trustees when legislation requires action to maintain the "Qualified" status of the plan. We work closely with sponsors to exchange the information needed to "run" the plan.

There are several tax advantages and incentives for maintaining a Qualified Plan, including:

• Contributions to the plan are tax deductible for employers. Annual Cost Of Living Adjustments (COLA’s) are published by the IRS annually listing the amount of allowable tax deductible contribution.
• Employees are not taxed on the contributions and earnings until they withdraw the funds.
• Earnings on investments accumulate at a faster rate because taxes on investment earnings are deferred until the funds are withdrawn.
• Plan administration and expenses are tax deductible (when paid by the Employer.)

There are several types of Qualified Plans to choose from. Most plans fall into one of two categories: Defined Contribution (DC)and Defined Benefit Plans (DB).

Top of Page

Defined Contribution Plans: (DC)

The plan sponsor (company) determines how much they will contribute to the plan and how it will be allocated to the eligible employees. Each employee maintains a separate account which will reflect on going contributions by employer and/or employee, investment returns, and distributions or fees. There is no guaranteed benefit for DC plans. Your retirement benefit is determined by your contributions, (aka: deferrals) investment performance, and fees. The money deferred is pre-defined in the plan document. The amount available at retirement is determined by account activity and investment returns. There are several types of DC Plans.

Profit Sharing Plans: are the most flexible of all Qualified Plans. The employer’s contribution is discretionary (up to 25% of total compensation) and allocated by pre-determined criteria defined in the plan document. Some Profit Sharing Plans allocate according to pay, some by tenure, some by age, and some are allocated by a combination of factors.

401(k) Plans: are today’s most common retirement plans. 401(k) plans are mainly employer sponsored plans. The plan sponsor optionally choose to "match" part or all of the employee's contribution by depositing additional amounts in the employee's 401(k) account can, or simply offer a profit sharing contribution to the plan. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix.

Money Purchase Plans: are DC Plans where the employer’s contribution is fixed and pre-determined by the language adopted in the plan document. The amount of contribution each employee receives from the employer is in proportion to that employee's wages. Unlike profit sharing plans, these contributions are mandatory every year, regardless of profits.

403(b) Plans: are run much like traditional 401(k) plans, however they are for non-profit organizations. The IRS rules for 403(b) plans have recently changed requiring a plan document and the filing of an annual return (5500) where none was previously required.

Top of Page

Defined Benefit Plans (DB)

Defined Benefit Plans: are plans in which a retired employee receives a specific amount based on salary history and years of service, and in which the employer bears the investment risk. The fixed amount in this case is the retirement benefit, not the contribution. Employer contributions are determined each year by market values of prior investments, how many years the employee has until retirement and other actuarial adjustments. (Contribution requirements are increased when the market does poorly and decreased when the market performs well.) Social Security is an example of a government-run Defined Benefit Plan.

Top of Page

Hybrid Plans

Floor Offset Plans: A guaranteed benefit level is established in the DB plan based on age, service and/or compensation. If the annuity value of the DC plan is equal to or greater than the guaranteed level of the DB plan, all of the benefit will come from the DC plan. However, if the annuity value of the account balance of the DC plan is less than the guaranteed benefit of the DB plan, the DB plan will make up the difference. To be part of a floor-offset arrangement, a DC plan must meet certain conditions related to type of plan and plan provisions. ESOPS (Employee Stock Ownership Plans)and 401(k) plans are not permitted, however profit sharing plans and money purchase plans are permitted to meet the DC portion of this platform.

Top of Page

Choosing the Plan That Meets Your Needs

There are many nuances and provisions in retirement planning that are complex. Some plans are more costly to run than others, and some offer more employer or employee discretion. The best way to choose the plan that works for your company is to speak with one of our plan consultants. Together, we will identify the plan that meets your goals, needs, and budget. The first consultation is Free.

Call us at (805) 371-9222 or e-mail to: info@trco.com to set up your consultation today.

Top of Page